Power to the line people: there's a revolution in compensation, led by companies like Marriott and Dow. They establish market prices for pay, and let line managers make the salary calls. The results are impressive

Workforce, June, 2003 by Fay Hansen

Delete the pay policy manual. Scrap the salary budget. While you're at it, incinerate minimums, maximums, grades, ratings, and distributions. In the new world of salary management, what's driving corporate direction at places like Marriott International, Inc., and Dow Chemical Company is this: determning market prices and then handing the power over to the line managers.

A look at the sheer size and scope of the vast Marriott empire offers a glimpse of why structural human resources changes in pay were an absolute necessity The vast $20-billion-a-year innkeeper encompasses more than 2,600 properties staffed by 140,000 employees. The ubiquitous hotels in the chain ring every major airport and city center in the country The hotels have agreeable, familiar-sounding names such as Courtyard, Fairfield Inn, Ramada International, Residence Inn--even, of course, Marriott.

At one time, each facility--or brand--targeted a market segment and operated almost as an independent company. But a decade ago, all of that changed. That's when Marriott adopted a radically new corporate strategy designed to manage the entire market as one business. But there was one hitch: the company's compensation and human resources systems quickly defeated attempts to execute the new strategy. Massive change was necessary. Now, after years of large-scale tinkering, Marriott is in the final stretch of implementing a new company-wide human resources management plan, a program that company executives say has revolutionized the organization's approach to pay and performance and reshaped employee loyalties.

Dow Chemical also pursued a major organizational shift that required a dramatic change in its human resources systems. Operating with 50,000 employees in 170 countries and drawing 60 percent of its revenues from abroad, Dow had to move from a function and geography-based organizational model to one that is structured around global businesses. That's why the chemical company adopted a global salary-management process in 1998 as part of a larger effort to integrate all key human resources offerings--compensation, job levels, learning, development, and competencies--and truly globalize its workforce. Today, Dow's new system fully supports the company's global expansion.

The new programs at Marriott and Dow are examples of how companies are using salary- and performance-management systems to realign human resources when corporate objectives shift. The new systems don't fit a single model, but their common trait is that they establish market pricing and then push compensation- and performance-management decision-making--with real clout--down the line to managers. At Marriott, Dow Chemical, and other companies with new systems in place, managers have more power over pay than ever before, and the results are impressive.

Reshaping employee development

Marriott executives knew that the new market-management strategy would improve the company's competitive position, but the first executives who tried to execute the concept immediately hit a brick wall. "This senior operations vice president called human resources from Atlanta and said, 'I have a compensation problem,'" says Karl W Fischer, vice president for compensation, communications, and performance management at Marriott's headquarters in Washington, D.C. "A team went down and looked at the problem, and we saw that it was much broader than compensation. Our human resources systems were not supporting the new direction the company wanted to take."

The company needed leaders and managers who could manage across brands to consolidate the company's command over an entire market. Moving managers from one hotel to another and encouraging lateral career steps would help to build the workforce required for cross-selling. "But because each brand had its own approach to pay, performance management, and career development, our associates saw themselves as employees of the brand first and then as employees of Marriott. They wouldn't move," Fischer says. "They focused on building their careers within a specific chain, such as Courtyard, and within a specific function, such as sales and marketing, or front-desk operations."

The revolution at Marriott began when Fischer and the human resources team "threw out our cookbook of detailed compensation policies and procedures," he recalls. "Then we installed a far more flexible approach that focuses on giving managers the information and training they need to make good business decisions in the context of pay." The team designed and tested the new program at 30 properties in the Atlanta area, collected feedback, made modifications, and then launched it nationwide for 14,000 managerial and professional salaried employees. Fischer will introduce it to hourly supervisors in late 2003 and early 2004, and to the remaining 100,000 hourly employees in 2004 and 2005.

The new system integrates compensation, performance management, and career development. "It was designed and built to integrate all three so that they reinforce and support a particular corporate strategy," Fischer says. To jump-start the program, the company paid employees a lump sum if they took a job in a different Marriott chain or discipline. "Now we have more movement of managers between brands and disciplines than we have turnover, which we consider very much a success' he says. "Employees are broadening their experience base." In 2002, the company stopped the lump-sum payments because moving between properties and between jobs had become part of the corporate culture. "What we were trying to accomplish actually became the norm," Fischer says.